are too young to remember the dot-bomb crisis of nearly twenty years ago, that's why they're willing to live in a fool's paradise. All my money has been in money-market funds for the last twenty years, with one exception a year and a half ago, and I lost a couple of thousand bucks in a retirement index fund that was supposed to be perfect for people retiring in 2020.

Never again.

on the rise in the stock market over this same time. Money market funds don't even keep up with inflation. Whereas the stock market periodically makes new highs, but never makes new lows. At least not since 1933.

Even with the sharp drop in 2008 and 2009, the market is good to long term investors. And I bet if you'd left your money in that index fund it would have more than recovered.

the whole damned thing. I am the most risk-averse person you could ever run into. It would drive me nuts to have sacrificed to put $1,000 in my 401K per month, and have it drop $2,000 in any month.

The way to have money is to not depend on profiting off of someone else's mistake, it is to cut back your spending so that you can save as much as possible in a safe place. That's how I retired early.

No, I'm not going to jet off to Europe every few months, but there are a lot of places in the US I can go cheaply in my hybrid car.

Have fun in the casino while it lasts.

Last edited Sat Jul 20, 2019, 10:13 AM - Edit history (3)

https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
There's a graph at the upper right of the article (that one can click on to expand it)

From reading this graph, which begins in 1896, it looks like it was at about 31 very shortly after it began, and then again in 1903 - actually a whisker above 30. So I would say 1903 was the last all-time low for the DOW, from 1896 anyway.

The July 8, 1932 post-1929 crash/Depression low was 41.22
https://www.thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174

Dividends aren't included in these numbers. Back then, until the 1950's, stocks had higher yields than bonds.

EDITED TO ADD --

If dividends are included, it's likely the all-time low account balance would be 1896, the initial year, as dividends cumulatively would have almost certainly been more than 3% over 7 years (from 1896 to 1903).

I'm not at all certain how to interpret the Dow prior to 1929. But I am constantly astonished here on DU that so many will proudly say they sold everything at some particular date -- most recently any date since November 8, 2016. Although there are plenty who sold off at various earlier dates. They are all losers. Buying and holding for the long term is a winning strategy. Especially if you include dividends.

For those who are uber cautious, buying utility stocks, or funds that invest in utility stocks is an excellent conservative strategy. Putting all your money into CDs or bonds of any kind is dumb. Yes, some of your money should be in those, but not all of it.

Oh, and can we discuss annuities? They have a completely undeserved bad rap. No, you should absolutely not put all of your money into an annuity, no matter how truly good it is. Diversification needs to be at the heart of any financial strategy. But here's my story: in 2012 my financial advisor persuaded me to purchase two annuities. That took about half of my money. But only half. Last December I started collecting income from those annuities. It's definitely more than I could be taking if I'd never purchased them but instead had all of my money in the other investments that same advisor has me in. I hope that sentence makes sense. Another way to put it is that the annuities have appreciated far above my other investments, and now I'm reaping the rewards.

So now I have a stable source of income: Social Security, a small pension, two annuities, and additional income from the rest of my investments. I actually have more income than ever before. Wow. It feels good. And I could actually be taking more money from those investments and still be secure. Here's the best part. Those first four sources (SS, pension, annuities) are guaranteed. The amount from investments could go down if the stock market has a serious crash. But even a crash won't send those investments to zero. I honestly think my worst case scenario is that I'd have to cut in half what I'm currently taking from those investments. Which wouldn't be fun, but we're talking a cut of maybe 15% in my income. I could easily manage that. I'd certainly have to make some changes, but luckily for my I am not living on every single penny. I have a fair amount of slack. It wouldn't be fun to have to cut back on some of my travels, but it's not as though I'd need to make a choice between paying the electric bill or buying groceries.

I do appreciate my relative affluence.

Again, thanks for your overview of the early stock market.

At the other end, speaking of the S&P 500 (which I much prefer as an indicator of the total U.S. market than the Dow 30, but its history is not as long) -- the S&P 500 index has hit no fewer than 11 all-time highs this year alone and 218 all-time highs since 2013 when it finally recovered its Financial Crisis losses.

I like to say (but I stole this from someone else here at DU and alas cannot recall who that fount of wisdom was) the market periodically makes new highs, but never makes new lows. That's something those who think selling everything and sitting out whatever financial catastrophe they think is happening, just don't get. Stay in the market. Really.

is getting in at the top. That's how the sharpies make their bucks, suck in the little people for a "sure thing".

It's just that over the past 100+ years, equities have performed better than bonds and cash equivalents (CD's, money market, Treasury bills, etc.)

The reason - earnings drive the market. This from Peter Lynch in 2001:

As far as the "big guys" and the "little suckers", corporate earnings (profits) have been an ever-increasing share of GDP, while wages and benefits for the workers have been a declining share.

As for risk, the risk of running out of money in a long retirement is much greater in portfolios that are mostly in bonds or other fixed income than for portfolios that are mostly equities.

As for why we consider equities an investment and not "a casino", is the vast long-term performance superiority of equities over bonds or other fixed income investments.

For example, since its August 31, 1976 inception, the Vanguard S&P 500 index fund (VFINX) with dividends reinvested and after expenses, has returned 11.03%/year on average (through July 29, 2019). It has increased 89.075 fold during this 42.908 year period (1.1103^42.908 = 89.075). ON AVERAGE, it has doubled every 6.6 years. On average.
https://www.thestreet.com/quote/VFINX.html

This page dramatically shows the difference between the performance of the S&P 500 vs. 3 month T Bills and 10 year T Bonds.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

As one example, $100 invested at the beginning of 1928 compounded to $382,850 when invested in S&P 500. This despite being pummeled by the 1929 crash, the Great Depression, the 1974-75 crash, the Reagan double-dip recession, the 1987 crash, the dot-com crash, and the housing bubble crash.

If instead it was invested in 3 month T bills it would have only compounded to $2,063. And if invested it 10 year T bonds, it would have compounded to only $7,308.

I have more on the subject of why equities here:

https://www.democraticunderground.com/?com=view_post&forum=1014&pid=2212402
https://www.democraticunderground.com/?com=view_post&forum=1121&pid=1306

In my early investing years in the mid-1980s thru the 1990s, I was mostly in bonds and CDs (which were in the double digit yields in the beginning of the period and in high single digit yields in most of the 1990s). Fortunately, I did have about 25% in equities and that did considerably better than the fixed income stuff.

During the 1980s and 1990s, I used to squawk and holler about national and world events and oh God, the market is going to crash and its rigged and blah blah blah. And whenever the market dipped, I was a "see I told you so" type of idiot. And whenever it went up, I was a "it's a bubble" type of idiot. Meanwhile I noticed that my parents were nonchalant about market dips and just plugged away with a wide range of equity investments (mostly).

I was also fortunate enough to be a member of AAII (the American Association of Individual Investors), and eventually began to read more and more articles from the AAII Journal, and that was my primary way that I learned to invest, and to spend less time gnashing my teeth and wringing my hands. Consequently, I fortunately held on to my equities through both the dot com crash and the housing bubble crashes.

I hope you will consider putting at least 25% into equities. Whatever you decide, I wish you the best.

EDITED - I updated the Vanguard VFINX example through 7/29/2019.

in 1928 is dead today.

If you take a long enough view, anything is profitable, I guess.

Enjoy the ride while it's still exciting.

market goes on to new all time highs. (And never to new all time lows). So yes, it's been profitable in the short run as well as long run. I guess you missed my example of Vanguard's S&P 500 index fund (VFINX) since 1976. I can tell you what the results at any date are after that too.

For example, from 1/1/1990 to 7/1/2019, VFINX went up 16.07 fold, including reinvested dividends.

Neither my parents nor I were investing 100 years ago, nor in 1928 either (91 years ago according to my math), but we've done just fine.

"Enjoy the ride while it's still exciting."

Hope you don't run out of money in retirement. The odds being higher for those who earn virtually nothing in the money market funds vs. those who are invested mostly in equities. Even bonds are better than money market funds.

EDITED TO ADD: results of VFINX from 1/1/1990 to 7/1/2019

destroyed me, and my wife at the time was a stock broker! One of the reasons she became my ex.

It's people who pull their money out of the market when it heads down that lose.

From an earlier post of yours in this thread (post #1):

"I lost a couple of thousand bucks in a retirement index fund that was supposed to be perfect for people retiring in 2020. "

I can tell you what the results would be if you had held on to it, if you tell me when it was you bought it, and what the name of the fund was.

EDITED - to add "and what the name of the fund was"

I don't have the temperament for that kind of risk. My peace of mind is worth something.

Ok, I won't be jetting off to Europe every couple of months, but at least I can afford a good craft beer. And I don't have to use it to wash down ramen noodles.

Last edited Wed Jul 31, 2019, 04:27 PM - Edit history (3)

Or if you don't need to withdraw more than say 2%/year, that will work out fine too.

At higher levels of drawing down, people in equities/bonds mixes have their accounts last longer than those in treasury bills. According to simulations based on historic data.

On risk - yes, the S&P 500 index dropped 49.1% from peak-to-trough during the dot-com crash, and 56.8% from peak-to-trough during the housing bubble crash. And 48.2% in the 1973-74 crash.

I was mostly in bonds during the dot-com crash (out of fear of Y2K, LOL), so I "missed" that one. But I was maybe 80% in equities during the housing bubble crash, and I wasn't overjoyed watching the nest egg go down by about half. (It eventually recovered and went on to new highs, as I expected it would, but it was scary).

EDITED TO ADD: And 48.2% in the 1973-74 crash.

EDITED TO ADD: One's savings must also cover healthcare expenses in old age -- Fidelity every 2 years does a bi-annual report on how much out-of-pocket spending a 65 year old couple, both covered by Medicare, on average will spend out-of-pocket on healthcare over their lifetime -- the latest is $280,000.
https://www.cnbc.com/2018/04/27/how-to-plan-for-higher-health-care-costs-in-retirement.html

And that doesn't include long-term care (assisted living facilities, nursing homes, etc.). Nor does it include most dental, vision, or hearing. Nor over-the-counter medications.

So one must be cognizant that if one can live on Social Security and their pension early in retirement, that might not be the case when the health starts to go seriously downhill.

EDITED: added the link to the Fidelity article, and it's $280,000, not $250,000. And it comes out every 2 years, not every year

my IRA in smaller amounts, then bank it in CD's to preserve it for the future. I can get by on Social Security and my pension.

(in other words, are you over age 70.5) ?

If you don't have to, is there any reason to do withdrawals from the IRA?

The reason I ask is that you can invest your IRA or whatever part of it you choose, in CD's in an IRA. And then you can continue to enjoy tax-deferred compounding on it. That works out better unless your tax rate goes up in the future, and then one would have to do the math.

If it's a Roth IRA, it's tax-free compounding, and that ALWAYS works out better.

By the way, the age when RMD's need to begin is likely to change from age 70.5 to age 72, under the SECURE Act which is widely considered likely to pass. (If nothing else, so much less confusing).

And I'm in a low enough tax bracket that a Roth IRA wouldn't make too much sense.

Let's just say I have a fairly good situation compared to most retirees. And I feel I got there by saving money rather than risking it.

compared to a regular taxable account. Its the difference between tax-free and taxable. And like any IRA, it can be invested in CD's, money market funds, short-term Treasuries, or whatever else you consider safe.

Unfortunately, one has to have earned income (i.e. from employment or self-employment) in order to contribute to an IRA of any kind.

A Roth IRA may or may not be better than a traditional IRA, depends on a number of factors.

One can convert a traditional IRA into a Roth IRA (even if one has no earned income), but one has to do some math and make some assumptions in order to see if that's a good deal or not. One pays taxes on the amount converted in the year of the conversion (so don't convert a lot in any one year!), but from then on, as a Roth, the amount converted is completely tax free, including on withdrawal.

I've been converting small amounts of my traditional IRA almost every year since about 1998. Small amounts, so as not to push myself way up into a higher tax bracket -- higher than what I expect my "retirement" tax bracket to be, in which case its a little dubious. Obviously a lot of projections had to be made.

Edited to add --

This is all very generalized -- leaving out some of the many "terms and conditions" and restrictions and yada involved. One has to check anything like this (contributing to an IRA, converting to a Roth IRA etc.) out with at least a competent tax person, better a competent financial advisor, better yet both.

Edited to add --

Both kinds of IRAs have penalties for early withdrawal. The Roth IRA has a "5 year rule" -- a 10% penalty for withdrawals within 5 years or before age 59.5, or something like that -- anyway something to check up on if one is thinking of an IRA of either kind.

n/t !!